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How a rogue appeals court wrecked the patent system

Judges of the United States Court of Appeals for the Federal Circuit on October 1, 1982, the day they were sworn in by Chief Justice Burger. In the front row are Circuit Judge Giles S. Rich, Chief Judge Howard T. Markey, Chief Justice Warren E. Burger, and Circuit Judge Daniel M. Friedman.

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In 1972, the Court of Customs and Patent Appeals (CCPA) got a new chief judge named Thomas Markey. At Markey's investiture ceremony, patent attorney Donald Dunner spoke of the "anguish of the patent bar about the treatment of patents in various federal courts." The CCPA, a DC-based court that heard appeals from the US Patent & Trademark Office, was considered to be relatively pro-patent—but other federal appeals courts had jurisdiction over actual patent lawsuits and tended to be friendlier to patent defendants. Even worse, in Dunner's view, the Supreme Court itself seemed unfriendly to patent holders.

This sad state of affairs made it a bad time to be a patent attorney. Because patents were frequently invalidated by the courts, companies filed many fewer applications for them than they do today. Patents were seen as a backwater in the legal profession. Dunner urged Markey to inspire "his associates on this bench to spread the patent gospel to their sisters and brothers on the other federal benches."

A decade later, the patent bar's anguish would turn to joy as Congress merged the CCPA with another court to create the US Court of Appeals for the Federal Circuit. The Federal Circuit would be just as patent-friendly as the CCPA, but unlike its predecessor, the Federal Circuit was handed jurisdiction over all patent appeals, including the lawsuits that had previously been handled by other courts. On October 1, 1982, Judge Markey became the chief judge of the new court and set to work to remake patent law.

No institution is more responsible for the recent explosion of patent litigation in the software industry, the rise of patent trolls, and the proliferation of patent thickets than the United States Court of Appeals for the Federal Circuit. The patent court's thirtieth birthday this week is a good time to ask whether it was a mistake to give the nation's most patent-friendly appeals court such broad authority over the patent system.

The patent lawyers' court

Patent scholars Adam Jaffe and Josh Lerner tell a story in their 2004 book Innovation and Its Discontents that illustrates the problem Congress was trying to solve with the creation of the Federal Circuit. Every Tuesday at noon, a crowd would gather at the patent office awaiting the week's list of issued patents.

As soon as a patent was issued, a representative for its owner would rush to the telephone and order a lawyer stationed in a patent-friendly jurisdiction such as Kansas City to file an infringement lawsuit against the company's competitors. Meanwhile, representatives for the competitors would rush to the telephone as well. They would call their own lawyers in patent-skeptical jurisdictions like San Francisco and urge them to file a lawsuit seeking to invalidate the patent. Time was of the essence because the two cases would eventually be consolidated, and the court that ultimately heard the case usually depended on which filing had an earlier timestamp.

By 1982, concerns about the lack of uniformity in patent law had become widespread. Observers were also worried that generalist judges lacked expertise to handle the complexities of patent law. And so Congress combined the CCPA with the Court of Claims (which handled lawsuits against the federal government) to create this new court, the United States Court of Appeals for the Federal Circuit.

Enlarge/ President Ronald Reagan signs the Federal Courts Improvement Act, which created the United States Court of Appeals for the Federal Circuit, on April 2, 1982.

The new court had exclusive jurisdiction over patent appeals. Patent lawsuits were still heard by trial courts across the country, but when the trial courts' rulings were appealed, they would no longer go to one of the 12 geographically-based appeals courts that handle most other appellate issues. Instead, all patent cases would be heard by the Federal Circuit.

"Effectively reversing some major precedents"

By definition, this accomplished Congress's goals of making patent law more uniform and bringing greater "expertise" to patent issues. But it had an important side effect—making the law more favorable to patent holders.

Theoretically, the pro-patent leanings of the Federal Circuit should have been checked by a more skeptical Supreme Court. In practice however, the patent court had a great deal of autonomy.

"It is not common in the life of the law in America for a lower court and a major segment of its bar to take on the nation's highest court, effectively reversing some major precedents or at least substantially mitigating their impact," notes Steven Flanders in a recent history of the patent court. "Yet this was done."

The Federal Circuit, he said, also took on "the quieter and subtler effort to re-educate trial judges throughout the judiciary, to make them friendlier to patent-holders (or at least to the system of patents) as well." (Flanders, it should be noted, is an avowed supporter of the Federal Circuit and its efforts to reshape patent law).

This dismissive attitude toward Supreme Court precedents apparently survives to this day among patent lawyers. In the wake of this year's decision limiting patents on the practice of medicine, patent attorney Gene Quinn wondered, "How long will it take the Federal Circuit to overrule this inexplicable nonsense?" Obviously, the Federal Circuit can't "overrule" a Supreme Court decision. But with enough persistence, it can, and often does, subvert the principles enunciated by the nation's highest court. And when it does so, it almost always works in the direction of making patents easier to obtain and enforce.

170 Reader Comments

Well researched and written, but most of all thank you so so much for giving this particular issue more attention. I've been interested in IP reform for a long time, but until I first read up on the history a couple of years ago I had no idea how such an immensely huge issue had effectively been carved out by the judicial fiat of a single court. The scope and ultimate effect of just a couple of decisions decades ago is as breathtaking as it is enraging. Despite the tremendous bias right from the start, it's also interesting how little known the role of CAFC is. The USPTO popularly gets a lot of the blame, but in the past the patent office was quite strict. They effectively got browbeaten into submission by the CAFC, and the sheer number of patents they enabled further blew apart the office's capabilities all by itself.

I agree with the conclusion that major reform, all the way back to total devolution, would be quite helpful and seems like it might be easier then an explicit ban.

A fascinating insight into how the US legal system regarding patents became what it appears to be today. The real question is will it prove as mistaken and costly to all as the governance of the US and international banking system; without reform I fear it really could do...

You might want to read: "The Case for Abolishing Patents (Yes, All of Them)" from a Federal Reserve Bank of St. Louis working paper by Michele Boldrin and David Levine, professors at Washington University in St. Louis who argue that any patent system, no matter how well conceived, is bound to devolve into the kind of quagmire we're dealing with today. http://www.theatlantic.com/business/arc ... em/262913/

Patents, like copyrights, significantly inhibit innovation and cost everyone. Your citing China and saying companies there don't invest heavily into R&D is misleading in many ways. More companies make money rather than a few as is the case in IP heavy countries, and costs to the consumer drop.

Eliminating patents would result in MORE innovation, period. Patents serve only to stifle innovation AND competition.

The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity, unless the latter is identified with the number of patents awarded – which, as evidence shows, has no correlation with measured productivity. This is at the root of the “patent puzzle”: in spite of the enormeous increase in the number of patents and in the strength of their legal protection we have neither seen a dramatic acceleration in the rate of technological progress nor a major increase in the levels of R&D expenditure – in addition to the discussion in this paper, see Lerner [2009] and literature therein. As we shall see, there is strong evidence, instead, that patents have many negative consequences.

[snip]

A closer look at the historical and international evidence suggests that while weak patent systems may mildly increase innovation with limited side-effects, strong patent systems retard innovation with many negative side-effects. Both theoretically and empirically, the political economy of government operated patent systems indicates that weak legislation will generally evolve into a strong protection and that the political demand for stronger patent protection comes from old and stagnant industries and firms, not from new and innovative ones. Hence the best solution is to abolish patents entirely through strong constitutional measures and to find other legislative instruments, less open to lobbying and rent-seeking, to foster innovation whenever there is clear evidence that laissez-faire under-supplies it.

The graph showing win rates is interesting. I think it indicates that something was broken before the creation of the Court of Appeals for the Federal Circuit. Note that when plaintiffs were only winning 20-40% of the time, this was before software patents. It was back in the day when the examiners actually knew their subjects, and we didn't have the flood of bad patents we have now.

Also note that there is a rebuttable presumption of validity, so to invalidate the patent the burden of proof is on the defendant.

Finally, note that it is the plaintiff who decides to sue for infringement. This should filter out most of the weak cases, as plaintiffs who know their case is weak and the win rate overall is only 20-40% most likely will not try.

Given this, I would expect that in a fair system, we should see plaintiffs to win well over a majority of the cases.

all the way back to total devolution, would be quite helpful and seems like it might be easier then an explicit ban.

You can visit China and get a preview for what that would look like.

Companies there don't invest heavily into R&D because any innovations become acquired by the competition. So the basically clone everything from countries that have IP laws.

Eliminating patents would result in less innovation, period.

In your rush to defend all things IP unthinkingly, you seem to have mentally equated elimination of software patents, taking us back to the era before CAFC, with elimination of IP in general which is something I do not advocate nor support. Right now I am in favor of IP as a concept, as although it's a hack I haven't seen any convincingly better alternatives to the valuable information generation problem. However, the present implementation is very poor and is strongly in need of reform. Concepts have been applied where they don't belong, aren't beneficial, or have been taken to such extremes that they destroy the balance of value. That doesn't mean throwing the whole thing away, but significant changes are important.

I didn't feel the need to explicitly specify "software patents" every single time I used the word given, you know, that's the entire theme of the article. Did you even read it?

Given this, I would expect that in a fair system, we should see plaintiffs to win well over a majority of the cases.

You're assuming the majority of the cases were filed legitimately. It's quite possible that the competitors sued were using a different method to achieve the same result, thus not actually violating the patent in question. To me all it says is 60-80% of the patent lawsuits filed were bad lawsuits in the first place.

I would like something more of a peer review in terms of patents, such as is the case for scientists publishing their findings in journals, to prevent patants that say that a rectangle with rounded corners is IP. But this might bring a whole new slew of problems.

all the way back to total devolution, would be quite helpful and seems like it might be easier then an explicit ban.

You can visit China and get a preview for what that would look like.

Companies there don't invest heavily into R&D because any innovations become acquired by the competition. So the basically clone everything from countries that have IP laws.

Eliminating patents would result in less innovation, period.

The trick is getting the balance. Patent, trademark, and copyright laws were all created to spur innovation, they used the ability for the inventor or creator to make money off them as a carrot.

The problem is that people have forgotten that it was a compromise agreement that even it's original supporters literally called "a necessary evil", they didn't like the idea of even limited monopolies, but it was the best compromise they could come up with.

As it stands the current IP system is strangling innovation, maybe not as much as no IP, but it's still doing it. As I said before the trick is getting the balance, keeping the thirst for innovation and competition, but at the same time protecting creators.

The entire system needs a drastic ground up overhaul, to foster innovation and the public good of free access to information at the same time, as was originally intended.

Finally, note that it is the plaintiff who decides to sue for infringement. This should filter out most of the weak cases, as plaintiffs who know their case is weak and the win rate overall is only 20-40% most likely will not try.

Given this, I would expect that in a fair system, we should see plaintiffs to win well over a majority of the cases.

Not really, the practice of predatory lawsuits isn't a new thing, it goes back many many centuries. You may know you have no real chance of winning, but you can afford the fight a lot better then your opponent. It can be used as a bargaining chip in negations, or simply as a means to drive someone bust.

Frankly I'd like to see judges smash such tactics with an iron gavel, refusing to let companies drop suits brought as a negation tactic.

The government's patent on marijuana (2003) was neither non-obvious nor novel. They were just the first to file ... at least, rejecting all other applications so that they were the only ones. The government picked a winner here, and it was itself.

The purpose of patent law is so that people can share their ideas, being granted a temporary monopoly on ideas that belong to everyone; the whole of humanity gets to benefit. People are allowed to create their own cotton gins by reproducing the instructions in the patent, they just can't sell them until the patent expires.

The problem comes in when attorney's interpret the law in their favor, thinking that you can't create your own cotton gin even when not for sale (protecting profits by forcing consumerism), that the creations of mankind don't belong to everyone, that it is our right to hold others in debt ... yes, even by threatening them with detention, or debtor's prison reborn. The same issue occurs with copyright. I hold these the actions of these individuals to be anti-humanitarian, to further the suffering invited on mankind through laws whose rewired motivation was only for golden-parachute profits, not to spur innovation.

That trend appears to have continued into the 21st century with nothing new being added to the debate so far. Bolder in and Levine certainly haven't produced any useful contributions. It's very hard to look at the issue empirically because patent systems are so pervasive in modern economies and because modern patent systems were introduced together with industraisation it's almost impossible to know if increases in technological develop,ent happen because or in spite of a patent system. Switzerland and The Netherlands have already had their non patent post industrial periods studied to death with no real conclusions. There's only so much you can learn from tiny countries with multiple borders that imported and exported heavily with their neighbours that did have patents.

There does seem to be a misapprehension above that the uspto rejects fewer patents tha before. That is not true.

... thinking that you can't create your own cotton gin even when not for sale ... that the creations of mankind don't belong to everyone ...

I hold these the actions of these individuals to be anti-humanitarian, to further the suffering invited on mankind through laws whose rewired motivation was only for golden-parachute profits, not to spur innovation.

Amen. Ultimately, the advent of computer technology has achieved the dawning of the era of free information for humanity. Computers and networks operate by duplicating and distributing information, at a truly trivial cost. To ignore, vilify and squander this incredible, revolutionary wealth is anti-humanitarian. If the printing press was a significant step in human history for the information revolution it enabled, by radically lowering the cost duplicating and distributing information (no more hand copied books), then computers and the internet are that step taken to its final conclusion: free.

In the long view, the fundamental concept of IP cannot be expected to withstand this technology, and all efforts to protect such concepts can only be seen as a fading transition to some new kind of economy of information that properly exploits the incredible wealth of free information.

I don't know how such a future will work. I don't know how it will pay people who create and manage information. But I think that the brute force of the technology, combined with the potential competitive advantages of leveraging the wealth of information freed, must inevitably come to dominate our information economy. Clinging to concepts of IP protectionism does not help us advance our thinking in the right direction, does not lead us to visionary insight about how to create a better future and exploit it to maximum advantage. We should be thinking ahead and planning the full abolishment of patents and copyrights, as obsolete concepts, figuring out the new problems that will need to be solved, and figuring out excellent solutions to those problems.

The idea behind patents is to drive innovative, risky behaviour that companies would not otherwise invest in (because on the whole, most business is risk-adverse) by granting the patent-holder a time-dependent monopoly on the sale of their invention, with most market-based societies striving for fewer monopolies. The prospective patent-holder therefore has to show that their invention is innovative, new (in the sense of never attempted before) and non-trivial - in the steel industry, whenever someone asks why we do something that is difficult, we answer, "Because if it wasn't difficult, everyone would be doing it".

In capital-intensive industries, such as most manufacturing industries (metal-making, vehicle fabrication, chip foundries) patents allow companies to try risky, high-capital ideas with the knowledge that with a patent, the payback period becomes shorter because they have no competition - so long as the patent-holder actively defends their patent, i.e. if a competitor copies the patented product or process, the patent-holders have to litigate against them or else the courts may say that the patent isn't so important after all, if the patent-holder isn't making such a hullaballoo about the copying (think of the Metropolitan Police in London taking the BBC to task for copying the police-box design - admittedly a trademark case but the principles are the same - and being thrown out of courts with the question, "Why didn't you say something earlier?")

Another example is the introduction of the basic oxygen process for making raw steel from pig iron. Invented by VoestAlpine in Austria, this introduced a 30-minute process for making hundreds of tonnes of steel when the next best process took hours. When introduced in the early 1950's, VoestAlpine became the leading steelmakers in the world, and began selling it to everyone. The Japanese, of course, were very early adopters and when VoestAlpine made errors in protecting their patents, they lost control over the adoption of basic oxygen steelmaking in Japan and it was on for young and old.

So, scrapping the entire patent system is not a good idea, however as patents primarily help to foster innovation in capital-intensive industries, exactly how this applies to software is a bit beyond me and that's where there may be room for improvement.

all the way back to total devolution, would be quite helpful and seems like it might be easier then an explicit ban.

You can visit China and get a preview for what that would look like.

Companies there don't invest heavily into R&D because any innovations become acquired by the competition. So the basically clone everything from countries that have IP laws.

Eliminating patents would result in less innovation, period.

You might want to try reading Against Intellectual Monopoly before jumping to that conclusion. Patents and copyrights are about providing someone with a monopoly on a product. How is that good for consumers? How is it good for the majority of producers? And where is the evidence that it encourages innovation?

There is actually absolutely no evidence that patents achieve their stated aim. Copyrights? Well, can you explain why an A-grade film star is worth several million dollars per film? Or for that matter, why a number one hit should earn an artist millions while there are millions of other singers who wait tables to survive? Is that how a sensibly structured economy should work?

Why should people die because the drugs they need are priced in accordance with a monopoly? Would drug companies go out of business without that monopoly? Given that their business in recent years has been largely "reinventing", "relabelling" and repatenting existing products, I don't think abolishing patent law would be a bad thing. Especially when most of the actual innovation occurs in universities.

And so Congress combined the CCPA with the Court of Claims (which handled lawsuits against the federal government) to create this new court, the United States Court of Appeals for the Federal Circuit.

I know what it says in the Constitution; but it doesn't make sense to check and balance the judicial by appointment from the executive and creation of courts by the legislative. The other 2 branches don't really have a direct say over each other's officers, members, and function. The Senate may vote on the President's appointments but the President has the ultimate power over his Secretaries and what they do.

I agree with the general sentiment of the article. I am unsure that we need to have a specialized court just for patents. Article 3 judges are not stupid, I do not think that jurisdiction should have been taken away from them in the first place. Because of the differences in thought process we do get circuit splits and it generates dialogue that just does not exist right now with the Federal Circuit. I am not advocating going back to every circuit hearing appeals on patent subject matter. I think a more rational approach would be to give the Federal, 7th, and 9th Circuit jurisdiction.

While I agree the patent system needs a lot of fixing, I don't think decentralizing patent suits will do anything.

What you get in that case, I think, would be a reversion to the old days when it was a race to get suits filed in respectively friendly areas, unless you just pile on a bunch more rules that would inherently offer new ways to break the system.

My opinion is that it would be better to rotate seats in the court. There's still one Federal Appeals Court, but it's really just an organizational docket that gets spread across all similarly-senior courts. So, all cases are filed in one place, treated as if they're in the same court, and farmed out to other courts' dockets. That way the patent cases are applied across a bunch of judges, rather than a relative few agglomerating in a single court and skewing the entire system.

why (should) a number one hit should earn an artist millions while there are millions of other singers who wait tables to survive? Is that how a sensibly structured economy should work?

Obviously in this direct example a sensibly structured economy should pay each member of this class an equal share of the total income (~$1), thereby requiring everyone to wait tables to survive.

And, embracing the future economy of freely available information as many people in this thread have, this can be roughly achieved if every one of these singers has equal ownership in a distributor, demand is proportionately spread, and the IP of the first artist is of course free.

Again this makes a lot of sense, as the waiting of tables and the duplication of information represent more valuable contributions to society than somebody singing.

As soon as a patent was issued, a representative for its owner would rush to the telephone and order a lawyer stationed in a patent-friendly jurisdiction such as Kansas City to file an infringement lawsuit against the company's competitors. Meanwhile, representatives for the competitors would rush to the telephone as well. They would call their own lawyers in patent-skeptical jurisdictions like San Francisco and urge them to file a lawsuit seeking to invalidate the patent.

Is this describing the period immediately preceding the foundation of the Federal Circuit Appeals Court in 1982?

It makes sense to speculate that Silicon Valley, and perhaps the biotech industry, had an influence on the San Francisco court. Who or what was influencing the Kansas City court?

Are you talking about the Bible, the Romans 12 speech describing we all being of office from the same body ... or are you talking about communism? Which, by the way, I would like to reinforce that I have never heard of an actual communist country that wasn't a dictatorship, an empire in disguise - we only call them that to convict them, to condemn them, to ruin the intended meaning.

Why should people die because the drugs they need are priced in accordance with a monopoly? Would drug companies go out of business without that monopoly? Given that their business in recent years has been largely "reinventing", "relabelling" and repatenting existing products, I don't think abolishing patent law would be a bad thing. Especially when most of the actual innovation occurs in universities.

Well, a lot of HIV/AIDS drugs are going out of patent, so now they're inventing a new regimen that they are hoping to push onto more patients, and ultimately medicare recipients.

Timothy - anyone that has actually read a Supreme Court patent decision would know that, with a very few exceptions, the Supreme Court is incompetent at deciding patent law. Their decisions usually provide no certainty, no useful guidelines and often improperly combine issues that are completely separate. Of course the Fed Cir tries to mold the resultant decisions into something useful, otherwise no one would have any sense for what the probable outcome was in a subsequent case and you would see a lot more useless litigation. IMO, the whole basis for your article is flawed. If you actually understood the matter you would, perhaps, write a more useful article that touched on the real issues with the patent system.

A case in point, Festo (where the Supreme Court reversed the CAFC) was decided by the CAFC because of the Supreme Court decision in Warner Jenkinson (that was a poorly written opinion indeed). So the Fed Cir decided that there was an absolute bar to prosecution history because of what the Supreme Court said and then the Supreme Court didn't like the effect of its first decision and changed its mind. This kind of thing happens over and over. If the Supreme Court actually had a clue they could provide a useful decision the first time (and it must be said that the CAFC definitely has some screwy decisions that could be revised - but that is true of any court). But about the only place where Supreme Court can make an informed decision is in procedural manners so it is extremely rare that an Supreme Court decisions adds any hint of clarity to the issues at hand.

The patent system before the Fed Cir was pretty terrible. Depending on the circuit you ended up with, a patent might be invalid or valid (which is obviously a terrible way to run a patent system as it is supposed to be a US patent, not a 5th circuit or 2nd circuit patent). Judges tend to make very poor decisions when they don't understand what it is they are talking about so having the appeals all taken by the same set of judges at least helps ensure there is some knowledge about patent law. And one more thing, Posner has lost a bit and probably should retire. I certainly wouldn't use his recent decisions as the basis for making any kind of policy.

... anyone that has actually read a Supreme Court patent decision would know that, with a very few exceptions, the Supreme Court is incompetent at deciding patent law. Their decisions usually provide no certainty, no useful guidelines and often improperly combine issues that are completely separate.

... the Supreme Court didn't like the effect of its first decision and changed its mind. This kind of thing happens over and over.

Judges tend to make very poor decisions when they don't understand what it is they are talking about so having the appeals all taken by the same set of judges at least helps ensure there is some knowledge about patent law. And one more thing, Posner has lost a bit and probably should retire. I certainly wouldn't use his recent decisions as the basis for making any kind of policy.

If anything, you justified breaking the law because we can't be sure if what we're doing is wrong or not. Eventually, the courts might overturn their previous decisions because they realize their former logic was unjust or flawed. Actually, I agree with this position. Innovation can't happen if you are afraid of potential repercussions due to the wording of the law.

Also, just because a judge has failed at making an argument doesn't mean they "should" retire, especially when he has the capacity to learn from his mistakes. Evolution of ideals will not take place when everyone is installed with the same thinking, pushing out the rest. Plus, when you concentrate the same judges deciding on patents, you narrow the number of persons who need to be bought off with your arguments. I think that is more dangerous.

Timothy - anyone that has actually read a Supreme Court patent decision would know that, with a very few exceptions, the Supreme Court is incompetent at deciding patent law. Their ...

Yet fact after fact goes to show that the Federal Circuit is making even worse decisions. Now you might dispute those facts - but then do so directly and argue your case.

The rest of your comment seems to be arguing that Fed. Cir. decisions are better in the sense of being more clear-cut and unambiguous. All else being equal, that would be a good thing. But it is not a good thing if that clarity comes from well-advertised willingness to favour litigators even if they have to ignore precedent or the common meaning of English words (like "obvious").

Again, you need to actually argue that the Fed. Cir. decisions are more-or-less good - either that pro-patent bias is good, or that there is no such bias.

>You can visit China and get a preview for what that would look like. >Companies there don't invest heavily into R&D because ...

Could it also be that In China, for the past 2000 years, if you were innovative or if you stood out of the rank for any other reason, you got your head chopped off? And in the past century, you would get your head chopped AND placed in a re-education facility for a couple of decades.

Nice article but the use of the words "patent-friendly / patent-unfriendly" makes it look like a case of opinion when it is not.

The "patent-unfriendly" courts simply apply the basic principles of the patent system (innovation, non-obviousness, patentability restricted to implementations, not general ideas, fundamental science and mathematics off-limits and so on).

The "patent-friendly" courts are trying to subvert these principles by granting limitless patentability on everything to anyone who can justify a spend on patent attorney fees. It's a protection scheme run by patent professional to protect the income of their profession.